Australian shares hit over 3-month low as oil rally revives inflation worries

Australian shares hit a more than three-month low on Thursday, with most sectors trading in negative territory, as a sharp rise in oil prices revived concerns that inflation could stay persistent and keep monetary policy tight.

The S&P/ASX 200 index was down 1.2% at 8,658.10, as of 0010 GMT.

The index fell as much as 1.4% earlier in the session, hitting its lowest since June 12.

Crude oil prices surged nearly 4% overnight after tensions between Iran and the United States flared anew, undermining hopes for an imminent easing of Middle East tensions.

Australia has been grappling with rising inflation, with fuel costs surging after the Middle East conflict drove up global oil prices.

The Reserve Bank has increased its cash rate by 75 basis points in total so far this year and has warned that rates may need to rise again to rein in inflation.

Market participants will closely watch monthly employment data due later in the day, the last major economic report before the central bank’s policy meeting next week.

Adding to the subdued sentiment, yields on short-term and long-term government bonds surged. Higher rates can weigh on equities both by raising the cost of financing corporate investment and by luring buyers back into the bond market.

Resources was among the major laggards with a 2% drop, as copper prices fell from near-record highs on a stronger US dollar.

BHP and Rio Tinto fell 2.3% and 1.6%, respectively.

Separately, operations at BHP’s Escondida copper mine in Chile were suspended after a worker was killed in an accident. Financials slipped 1.5% to hit a two-week low.

All “Big Four” banks declined between 1.8% and 2.1%. Rate-sensitive real estate and consumer discretionary stocks lost 1.4% and 1%, respectively.

Energy was among the few sectors trading in positive territory, advancing 1.1%.

Woodside Energy and Santos climbed 1.2% and 1.4%, respectively.

In New Zealand, the benchmark S&P/NZX 50 index fell for a second straight session and was last down 0.3% at 13,779.54.